Don’t Blame Biofuels for Food Crisis

Biofuels have contributed far less to rising food prices than previously estimated, a new United Nations report’s data suggests.

The State of Food and Agriculture 2008 projects that biofuels production only adds 15 percent to world food prices, and that despite rising ethanol capacity, overall food prices are headed down. The slowing world economy combined with increased agricultural production, are cutting the prices of staples like wheat, sugar and vegetable oil.

"Food prices have dropped significantly and will continue to drop," said Per Pinstrup-Andersen, a food economist at Cornell University, who was not an author of the U.N. report. "The reason for that is that farmers respond to these higher prices and you’ll get more food produced than ever before."

After a period of optimism earlier this decade that biofuels could help the world wean itself off crude oil, scientific and public sentiment have turned against the current generation of fuels made from crops. First, the carbon dioxide reduction benefits of corn-based ethanol were questioned and then, with food prices on the rise, food security advocates began to ratchet up the heat. Late last year, one U.N. official called converting food crop land to biofuel farming use a "crime against humanity." Earlier this summer, the Guardian reported that a World Bank researcher had found that biofuels had been responsible for 75 percent of the rise in food prices and "caused [the] food crisis." Even the new report

But all the rhetoric didn’t square with the relative amount of food being diverted to fuel production. Close to 2,500 million metric tons of grain and oilseeds are produced each year. U.S. ethanol production, which has received a big chunk of the blame, uses about 79 million metric tons of corn, according to a USDA report.

In fact, the food system has been remarkably resistant to the general run-up in commodity prices that has occurred since about 2000.
Commodities have risen hundreds of percent, largely driven by higher energy prices, but food prices have risen far less than that, as seen in the USDA chart to the right.

Even the FAO authors themselves admit that "it is important to keep in mind that biofuels are only one of many drivers of high food prices."

In particular, placing the blame on biofuels obscures the role that long-held European and American agricultural subsidies played in creating the food crisis.

"One of the reasons we had this crisis with the very high food prices is that very little was invested in developing countries." Pinstrup-Andersen said. "Governments could import food at prices below the cost of production because of the heavy subsidies we had in the U.S. and E.U. Surplus production was dumped on the international market."

While that drove food prices to historic lows, it also created a more centralized food system that left developing countries with less domestic agriculture to pick up the slack when the world food supply dwindles.

Still, Pinstrup-Andersen argues that biofuels subsidies have still contributed substantially to the rise in food prices, especially in the wake of weather-related yield shortfalls in wheat producing regions over the past few years.

Perhaps more importantly, the report illustrates that the current generation of biofuels can be produced profitably, without subsidizing farmers. Ethanol producers are caught in a Catch-22. As the price of oil rises, they can presumably sell ethanol for more money, but higher oil prices drive up the cost of corn as a feedstock for ethanol. The FAO argues that these links between oil and corn prices mean that a profitable and clean ethanol industry isn’t possible.

"The analysis suggests that, given current technology, United States maize ethanol can rarely and only briefly achieve market viability before the price of maize is bid up to the point that it again becomes uncompetitive as a feedstock," the authors write.

With their environmental bonafides in question and without a profitable business model, it’s possible that current biofuels could be a bad idea, regardless of their impact on the world’s food system.

"What is very clear, I think, is that the U.S. subsidies for production of biofuel from corn and soybeans was a wonderful idea at the absolute worst time," said Andersen. "It would have been a wonderful idea six or seven years ago when prices were low, but the last couple of years, it has been very, very unfortunate."